Protection Measures Support Steel Prices but Disrupt Trade Flows

 Supply  options for large exporters of steel, such as those in China and  Russia, are becoming limited, owing to existing trade barriers,  implemented by many authorities around the world. As a consequence,  steelmakers are scouring the globe, for new destinations, in which to  sell their excess capacity. 

From MEPS’ research, in October, many Chinese steel market participants  report that they are finding it increasingly problematic to sell into  the neighbouring Southeast Asian market. This is due to the emergence of  local mills and strong competition, from Russian, Indian and Iranian  steel manufacturers. 

As a consequence, Chinese producers are actively seeking new business  relationships, in the Middle East and Africa, where demand of steel is  in excess of local production capacity. Chinese mills should be  confident of increasing their market share, at the expense of regional  suppliers.

Protectionist measures and trade cases, in many parts of the world, are  disrupting traditional flows of material – affecting the ethos of free  trade.

In the US, the Section 232 legislation has given local steelmakers the  opportunity to escalate selling values with little resistance, in the  past twelve months. Although figures are softening, from their recent  highs. Cross-border trade across North America has been disrupted by the  measures. The United States-Mexico-Canada Agreement (USMCA) is expected  to result in the removal of steel tariffs, and replacement by quotas,  in the latter part of this year.

Following the introduction of temporary safeguarding measures, European  steelmakers were able to solidify domestic steel selling values, during  the traditionally slow summer period. Weakening sentiment has resulted  in a reversal of the upward price trend, in recent weeks. Nonetheless,  it is reported that a vast proportion of the steel quotas are being  under-utilised. Local buyers appear to be procuring material from  domestic sources rather than from third-party countries. 

MEPS predicts that the current level of trade protection afforded to  steel mills, in several regions of the world, will help them maintain  prices, at their relatively elevated level, for the foreseeable future.